Mid-Year Update: 7 Property Markets To Play Now
As we come to the end of the first half of 2015, where should you be focusing your attention and investing your money if you’re keen (as you should be) to diversify into foreign property markets?
Your biggest opportunities continue to lie in markets in crisis, markets benefiting from the strong dollar (and the weak euro), and markets where the middle class is expanding in dramatic ways for particular reasons.
In addition, agriculture remains a key opportunity. If you’ve yet to diversify your portfolio to include some productive land play, you should make this a priority.
Specifically, here are seven property markets that have my full attention right now:
I spent a week in the Dominican Republic earlier this month, scouting property opportunities and hosting our Live and Invest in the Dominican Republic Conference. The DR is one of the most interesting property markets in the world right now. It’s also a dichotomy, offering very different kinds of property investment options. Punta Cana, for example, is an internationally popular all-inclusive resort destination that sees big volumes of tourists every year thanks to its miles of sandy beaches and balmy temperatures. Las Terrenas, meantime, is a quintessential Caribbean seaside village that’s home to a big community of Euro-expats. Both the tourist and the expat retiree markets in this country are expanding. However, prices remain undervalued across the board, relative to elsewhere in the region.
What could you buy? How about a brand-new, one-bedroom apartment about a five-minute walk from a Caribbean beach for US$100,000 or less that could be rented out for a good and reliable yield. You can also find multimillion-dollar properties that are, again, a bargain, compared with the cost of similar properties in other Caribbean markets.
The euro remains way down against the dollar, trading today at about US$1.13.
In Portugal, where they use euros, the property market likewise remains down in the dumps, just beginning to show signs of recovery from its real estate crisis of the last seven years.
Those two factors—a weak euro and a down-and-out property market—mean that ocean-side condos along Portugal’s coast can be a screaming bargain.
With US$200,000, you could buy a two-bedroom apartment of 900 to 1,000 square feet in Portugal’s Algarve region, within walking distance of the beach and close to a golf course. Don’t want to spend that much? No problem. With US$100,000, you could buy a comfortable one-bedroom place, also near the beach.
Europe is on sale thanks to the dramatic drop in the value of the euro against the U.S. dollar. With property prices still trying to recover in many parts of Europe, particularly in Portugal, the time to buy is now.
If you’re in the market for a vacation home on the Continent, a second home in the sun that you could rent out when you’re not using it, the Algarve has an important advantage over the Spanish costas (another region that you might also be considering in this context). In Portugal, the tax on property rental income for nonresidents is 25% of net income. In Spain, it’s 24% of gross income. That’s a big difference.
Turkey’s property market wasn’t hit as hard as others around the world in 2008 and 2009. Values in some districts of Istanbul dropped by maybe 25% at the height of the downturn (about the same as in Panama)… but, in just a year and a half, prices recovered. That rate of appreciation (10% to 15% per year on average) continued through 2014 and is expected to carry on indefinitely.
Despite these impressive rates of appreciation, Istanbul real estate remains a bargain compared with other global-standard cities. With a starting market price of around US$1,000 a square meter, middle-class housing in the Turkish capital can be an excellent bargain.
What’s driving the continuing appreciation in property values? Inflation is one factor; another is the GDP growth rate, which has been 4.5% to 5%. However, the compelling explanation for why property prices have been going up as quickly as they have been is a big and growing local demand.
Half the population of Turkey is younger than 30 years old. The country sees 350,000 weddings a year. All these new couples want places of their own to live. And, thanks to a strong economy and relatively low unemployment, more of these young couples than ever can afford places of their own.
In addition to all the young people needing places to live, half the current housing stock in the country needs to be replaced or renovated. Many of the structures are simply not suitable for living according to current-day standards. People in old buildings need new and better ones… further fueling the construction boom that continues to expand.
With its young population, Turkey is a country of the future. The economy is growing and diversified between Europe and Asia. And it’s easier than it’s ever been for foreigners to invest here now, especially in real estate.
Focus on Istanbul rather than the vacation properties along the coast that many foreigners have been buying. Vacation markets supported by mostly foreign buyers are less liquid than a local market like Istanbul. When you decided to sell your asset in this city, you’d have many different potential buyers to appeal to.
The safest, simplest investment options in the city are pre-construction apartments. Getting in early on a new building means discounted pricing and the expectation of price increases over the two- to three-year construction period.
The U.S. dollar is currently surging not only against the euro but other currencies, too, including the Colombian peso, making this market even more interesting. I’ve been recommending Colombia, specifically Medellín, for investment for six years, and I remain bullish. The Medellín market has seen good appreciation over the last six-plus years I’ve been recommending it (as much as 10% per year), and I expect this to continue. Meantime, the peso has fallen out of its five-year band of 1,750 to 2,050 per U.S. dollar to around 2,500 to the U.S. dollar, triggering a window of opportunity to get into this market on a dip.
Colombia’s economy is strong, and its middle class continues to grow. The long-term prospects are excellent. Buy both for immediate cash from rental yield and capital appreciation.
Mid-19th century, Paraguay was a wealthy nation thanks to protectionist dictators who happily exported tea and wood to the outside world but taxed imports heavily, creating a self-sufficient, wealthy, and (unlike neighbors Brazil and Argentina) debt-free country. In fact, at the time, Paraguay was flush enough to pay cash for technology that allowed it to own its railroad. Elsewhere in the region, it was the British who owned and profited from railway operations.
According to locals, that healthy economy inspired an attempt to interfere with Britain’s tea monopoly in Europe, which led to the war of the Triple Alliance in 1864. Other stories about the start of this devastating conflict include that Paraguay was just trying to protect Uruguay’s independence and got tricked into a much larger-scale conflict. Still others say the dictator at the time, Francisco Solano Lopez, was delusional enough to attempt to take over South America. Whatever the reasons for the war, the results were disastrous for Paraguay. By the end of fighting in 1870, the population was decimated and 25% of its territory was lost. Brazil occupied the country for six years.
A century and a half later, Paraguay is back on the path to prosperity. The country has the second lowest per capita GDP in South America, but its economy is growing (at an average rate of 7% per year for the last five years).
In Paraguay earlier this year, I investigated three kinds of property investment opportunities—land and agriculture, restorations in the old colonial center of downtown Asunción, and pre-construction in key Asunción neighborhoods. I was impressed by the potential of all three strategies. This country is at the start of what I predict will be a long growth cycle. More than 70% of the country’s population is younger than 30. As in Istanbul, that young workforce will continue to fuel growth for the next decade at least.
A chart of Argentina’s economic activity over the last century could have been used as the blueprint for one of the roller coasters I rode with my kids at Universal Studios in Orlando recently. Up and down, up and down, right now this market is way down, very close to another bottom. The last bottom was 2001. I bought three apartments in Buenos Aires in the wake of that collapse, and I’m watching now to see what I should buy in the wake of the collapse now upon us (I guess I should say the collapse now upon the Argentines).
Don’t let this country’s manic economy scare you off. The big downs are always followed by nice ups. Making money in Argentina is all about timing, and the time again is now.
Argentina will be holding presidential elections in October. My contacts in the country expect things to bottom before current President Cristina Kirchner is replaced. Keep an eye on the gap between the blue market and the Argentine peso’s official exchange rate with the U.S. dollar. When this gap begins to narrow, that’s your cue.
What to buy? Apartments in Buenos Aires, some of which qualify as among the most intrinsically valuable in the world, their cycle-to-cycle street value notwithstanding. Also look at vineyard opportunities. I’ve taken advantage of a crisis vineyard offer in Mendoza and am on the lookout for more.
Plus: Agriculture, Specifically Turnkey Plantations
Any diversified property portfolio should include some productive land component for important reasons I think you understand as well as I do. I’m actively pursuing agricultural opportunities from timber to certain fruits and vegetables (with a focus on organic production) in Colombia, Panama, Belize, Western Europe, and the Dominican Republic. Not all of the offers I’m investigating will work out, but I’ll alert you to the ones that pass muster. This is where I intend to place a significant portion of my available capital through the end of this year and longer term.
“Lief, up the coast a ways from Las Terrenas is a town called Sosua. I have in my research found that it is full of houses and women of ill-repute. Having a wife and two children, I would not want to live in a place that this type of commercial activity is prevalent. I am assuming since you recommend Las Terrenas that this type of thing is on a much smaller scale, right?”
Sosua is three hours or more from Las Terrenas. Las Terrenas has prostitutes (as does every town in the world), but prostitution is not nearly as visible in Las Terrenas as it is in Sosua, where the sex-tourism industry is aggressive.
There are no obvious clubs or venues in Las Terrenas. In this town, the sex trade is something you’ll find only if you go looking for it.